How Millennials Boosted Their Credit Scores in 2020

Millennials have been receiving some hot press recently. Let’s take a look and see what they’re up to. In a recent blog we discussed how despite the pandemic, millennials have doubled their assets over the past four years, topping $10 trillion in assets. As we continued to monitor how America’s young adults are setting themselves up for financial success, we found that millennials boosted their credit score more than any generation in 2020. However, we have also seen how individuals are struggling financially despite a high credit score.

The average FICO Score for U.S. consumers hit a record 710 last year, and millennials led the pack with an 11-point increase, according to Experian’s 2020 Consumer Credit Review.

Overall, all generations boosted their credit scores by one to 11 points from 2019 to 2020. These increases are a result of consumers paying their bills on-time and cutting back on spending amid an unpredictable economy. While millennials and Gen X saw double digit increases in credit scores (11 and 10 points, respectively), the silent generation continued to have the highest average credit score at 758.

The silent generation even outpaced the average credit score for the general population (710), which doesn’t come as a surprise since older generations typically have higher credit scores. This can be attributed to having more time to build good and excellent credit. We have also found that during the coronavirus pandemic, individuals have been using federal relief measures, including stimulus checks and a pause in loan repayments to boost their credit score, even though they may be struggling financially.

No matter your age or situation, it’s always important to know your credit score matters. And remember, it’s never too early to start building credit. Consider some of these tips if you are beginning to build your credit: make payments on time, pay in full, and consider utilizing a credit score tracker to ensure nothing falls through the cracks, like an old Verizon bill from college. Tiny unpaid bills such as those can have a lasting effect on your credit score, so make sure you stay on top of your finances and bills. 

It’s also important to note low interest rates and how you can use them to leverage your situation. With a high credit score, you can take advantage of historically low interest rates on all loans, including car, home, and student loans. By putting to use some of the tips listed above, you will have a much easier time with lenders when it comes time to take out a loan. If you have any questions about how to build or maintain a healthy credit score, please reach out to us at info@shermanwealth.com or schedule a complimentary 30-minute conversation here

Why the Average 40-Year Old Has a 676 Credit Score

Credit score is an essential part of your financial life, setting you up for success in the long-term. Whether you are a recent college graduate, starting your first job, or in your 40’s and a mid-career professional, credit score remains equally as important. While it’s extremely important to save money when you are first starting out, it’s also quite important to know how to spend money and understand the concepts behind your credit score and establishing good credit.

We read an interesting article that reported New Experian data that found consumers between the ages of 39 to 53 (aka Generation X) have a considerable gap in their credit scores when compared to older generations.

The credit bureau’s 2020 State of Credit report shows that Gen Xers, with an average credit score of 676, are closer to the scores of Gen Y/millennials (658) and Gen Z (654) than they are to Boomers (716) and the Silent Generation (729).

“Credit scores tend to improve as people age,” says Rod Griffin, senior director of public education and advocacy for Experian. But in order for Gen X consumers to reach the higher credit scores we see in older generations, they need to start focusing on two factors: lowering their credit utilization rate and paying their bills on time. Credit utilization can often be a confusing topic for many, but its important to keep in mind that if your utilization is too high, lenders may be worried you are relying on your credit card too much without being able to pay it off. If you need to charge large amounts on your credit card during a period of time, make sure to pay it off as quickly as possible to keep down your credit utilization. 

While Gen X consumers have had fewer missed payments year over year, they still have a higher rate of missed payments than any other generation.

No matter your age, making your bill payments on time is key to maintaining good credit standing and an overall healthy financial future. In fact, payment history is the most important factor that determines your credit score. A solid score gives you access to the best credit cards and better loan terms when you want to take out a mortgage or a car loan.

It’s crucial to make sure you know how to track your debt payments and credit score every month. Consider using credit monitoring apps such as Credit Karma that update you with real time changes or sites such as AnnualCreditReport.com to see where your credit stands and ways to improve it. Your credit report will list the payment history on your current and historical credit accounts from the past seven to 10 years, including revolving (credit cards) and installment accounts (mortgages and loans).

If you have any questions about your credit score of explaining it to your children or grandchildren, we are happy to help. Please reach out to us with any questions at info@shermanwealth.com or book a free 30-minute consultation here

These are your 2021 401(k) and IRA Contribution Limits

The IRS released annual inflation adjustments for 2021 for many tax provisions on Monday, including new income tax brackets and an increased standard deduction. It also announced that contribution limits for 401(k)s and IRAs will not increase next year. 

What Changed?

The following limits are going up for 2021:

  • The annual additions limit for defined contribution plans increases to $58,000
  • The annual compensation limit increases to $290,000
  • The Social Security Wage Base increases to $142,800

The following limits will remain the same next year: 

  • The salary deferral limit for 401(k), 403(b) and 457 plans remains at $19,500
  • The SIMPLE deferral limit remains at $13,500
  • The catch-up contribution limits for 401(k) plans and SIMPLE IRAs remain the same $6,500 and $3,000 respectively
  • The annual additions limit for defined benefit plans remains at $230,000
  • The compensation limit for determining who is a highly compensated employee will remain the same at $130,000

For more 2021 cost-of-living adjustments and 401(k) limits, visit the IRS’s bulletin. If you have any questions, please reach out to us at info@shermanwealth.com or check out our other blogs for more information on 401(k)’s. 

 

The Best Credit Cards For Grocery Shopping In 2020

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As the corona-virus pandemic has put a halt on restaurant dining, Americans have found themselves cooking at home more and in turn, spending more money on grocery shopping. When increasing your spend in a certain category, it’s important to think about how you can maximize these purchases and your budget by building rewards. You may want to consider a rewards credit card that can help you earn over $100 a year on your groceries. 

We read an interesting article from CNBC select that discussed the best credit cards to apply for if your grocery spending has increased or is a large chunk of your monthly budget. The average American spends about $5,174 a year, or roughly $431 a month, on groceries, according to a sample budget based on the latest spending data available from the location intelligence firm Esri. That’s more than Americans spend on dining out, which comes to about $3,675 annually. 

The best grocery rewards cards offer up to 6% cash back at supermarkets. While they usually exclude wholesale clubs such as Costco and BJ’s, and big box stores like Target and Walmart, you can still take advantage of these rates at Whole Foods, Krogers and other big name grocers.

CNBC Select analyzed 26 popular rewards cards using an average American’s annual budget and digging into each card’s perks and drawbacks to find the best grocery store rewards cards based on your spending habits. 

Here are CNBC Select’s top picks for credit cards offering supermarket rewards

If you find that your grocery bill takes up a large portion of your monthly budget, take a look at these credit cards, to see if you could capitalize on your spending. Additionally, no matter where you spend the majority of your money, whether it’s travel or dining, make sure you look into credit cards that are the best fit for you. If you have any questions on your portfolio or credit cards to maximize your spending, please reach out to us at info@shermanwealth.com

New Fed Strategy Means Cheaper Loans For A Long time — Here’s How You Can Benefit

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As we’ve all been waiting to hear about the outcome and policy changes from the Jackson Hole symposium, there’ve been some updates that you should know. In a major policy pivot, the Federal Reserve said it will allow inflation to run “hotter than normal” to help the economy bounce back from the coronavirus crisis, meaning the Fed will be less likely to hike interest rates. This will allow borrowers to benefit from cheap money for a longer period of time. According to some commentary, this policy change is meant as a stimulus, to get people to spend more. 

Although the federal funds rate, which is what banks charge one another for short-term borrowing, is not the rate that consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day. For example, most credit cards come with a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.

Since the central bank lowered its benchmark rate to near zero in March, credit card rates have hit a low of 16.03%, on average, according to Bankrate.com. Other short-term borrowing rates are even lower. The average interest rate on personal loans is currently about 12.07% and home equity lines of credit are as low as 4.79%, according to Bankrate, both notably less than the APR on a credit card.

On the flipside, the Fed’s willingness to tolerate higher inflation means that longer-term loans will offer less opportunities for borrowers. “Low inflation has helped suppress mortgage rates,” said Tendayi Kapfidze, chief economist at LendingTree, an online loan marketplace. “If you let inflation go up, mortgage rates will also go higher.”

With these cheaper loans for a longer period of time, it’s important to take a look at where you can lock in those lower rates, such as through credit card balance transfers or refinancing your mortgage. If you have any questions about this new policy, and want to see how this could be an advantage for your portfolio, please reach out to us at info@shermanwealth.com and we would be happy to discuss with you. 

Here’s How to Prepare your Finances

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With the additional $600 per week unemployment benefits coming to an end this week, it is important to think about the ways in which you can prepare your finances for the months ahead. Many Americans are currently jobless and have been relying on these additional COVID-19 related unemployment benefits. There is much uncertainty as we navigate through the pandemic the best we can, but there is great value in coming up with a plan to start saving and getting your finances in order as your benefits may decrease in the coming months. 

Here are some key ways to be prepared for your future and what you should expect as any additional unemployment relief comes to an end. 

Adjust your Budget 

A great place to start in uncertain times is with your budget. Sit down and attempt to cut out all unnecessary expenses along with looking into other options that may be cheaper. It’s important to think of all your essential monthly costs and see where you can save a buck or two. For example, take a look at your housing, food, utilities, and car payments to see if there are places you can cut down. Also make sure to take a look at bank and credit card statements to cut out those annoying hidden fees or unnecessary charges such as ATM fees. Also, think about selling items you may not use anymore for some extra cash. 

Contact your Creditors 

If you have not already called your creditors, you should consider reaching out to them and discussing your options moving forward. If you are only able to pay the minimum payment on your credit card bill, make sure to let your creditors know so they can figure out a plan and help you out. Many creditors may be able to offer you “financial hardship assistance” so that you can keep your credit in good standing even if you can’t pay more than a certain amount each month.

Build an Emergency Fund Even if You Don’t Think You Can 

We all know it’s important to have a cash cushion, especially in times of economic crisis. However, it can be difficult to think about how to build one when you are already strapped on cash. But, it’s never too late to start saving. The first step is to start reducing any debt. You should also try to put yourself into a “saving mindset” by incrementally setting aside a small stash of cash every month. You can contact your bank to set up auto payments to your savings account each month, which will help you get consistent with your saving habits. 

Expect a Drop in Your Credit Score 

While it’s important to maintain a strong credit score, in times of financial crisis it is okay to expect a drop in your score. As mentioned above, make sure to give your creditors a call to keep them in the loop about your situation. Also, if you are unable to pay your credit card balance in full, at least pay the minimum amount to keep your credit stable. 

Understand Your Costs

When you are strapped for cash, it is important to know which bills you should be prioritizing, for example, housing payments. While the additional unemployment relief is ending, so are the eviction moratoriums. Make sure to do some research and have a conversation with your creditors, landlords, and banks to fully understand the regulations and rules associated with your payments. 

Get Creative and Seek out Resources

Our current environment is a new adjustment for everyone, so don’t be afraid to seek out help even if you never have before. Your local city and state government offer information and resources ready to help you. When the additional coronavirus unemployment relief runs out, you may be able to qualify for government programs such as SNAP, Medicaid, and HEAP, according to CNBC. There are also many charities and organizations that are doing their best to help out those in need. 

Ask your friends and family for advice and we encourage you to seek out a financial advisor for guidance and clarify on your financial situation. If you have any questions or are uncertain about the future of your financial life, we are happy to help you in any way and help you figure out your financial future. Please contact us to schedule a free 30 minute consultation.

 

Recently Graduated? How to Establish A Good Credit Score

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Are you a recent college graduate? Are you starting your first job? While it’s extremely important to save money when you are first starting out, it’s also quite important to know how to spend money and understand the concepts behind your credit score and establishing good credit. 

Many consumers, especially those just joining the workforce, oftentimes don’t understand basic credit score concepts. Here are some tips on understanding credit and ways to establish a good credit score. 

As your first paycheck starts rolling in, make sure you are opening multiple lines of credit, including opening credit cards, putting your name on your school apartment lease, and signing your name on the comcast bill. However, when you open these lines of credit and sign your name, make sure you are paying your bills in full each month. If your roommate hasn’t paid your cable bill, make sure to stay on top of them so it doesn’t impact you down the road. However, if you have been impacted by the coronavirus pandemic and can’t pay the full bill, make sure you understand to pay the minimum and reach to your creditor to figure out a reasonable solution or game plan. 

Here are five important credit concepts that you should be aware of:

  1. Low credit scores can cost car buyers thousands more

According to the CFA and VantageScore Solutions survey, only 22% of consumers reported knowing that a low credit score borrower, when compared to a high credit score borrower, would likely pay over $5,000 in interest on a $20,000, 60-month car loan. With a low credit score, you are likely to only qualify for subprime auto loans whose annual interest rates often exceed 20%, the study says. 

Having a good credit score matters since not only will your interest on credit cards be less than those with worse-off credit, but so will the interest you pay on loans. Having healthy credit can earn you a lower interest rate on new loans and make it easier to qualify for financial milestones in life, like a first apartment or a new car.

  1. Your credit score actually measures your risk of not paying

Only 33% of those surveyed said that they know a credit score measures the borrower’s risk of not repaying a loan, while 14% thought it measures the borrower’s knowledge or attitude toward consumer credit.

You could have a good attitude about credit, but still have a bad credit score. The point is that your score illustrates to lenders how you would use the credit they extend to you. If you’re just beginning your credit journey, know that you need credit to build credit. Once you start using your credit card, lenders and card issuers like to see that you can use credit responsibly, which means using less than 30% of your available credit and paying your monthly bills on time and in full.

  1. Credit repair companies charge for services you can sometimes do yourself

Before you sign up for a credit repair service advertised to you, know what it will cost. While over two-fifths (42%) of consumers surveyed may be right that credit repair companies are usually helpful in correcting any credit report errors or helping to improve one’s credit score, these companies tend to charge relatively high fees to do what you could do on your own for free.

  1. Your age has nothing to do with your credit score, except for how long you’ve been borrowing credit

Nearly half (48%) of the survey respondents reported thinking that age is a factor used to calculate a credit score. The truth is that your age doesn’t matter in calculating your credit score, only your use of credit matters. In fact, the five components that make up your credit score include your payment history, utilization rate, length of credit history, new credit, and credit mix.

  1. Utility companies can check your credit score

Your credit score is a good picture of how likely you are to pay your bills on time, but the survey found that only 50% of consumers know that an electric company can use credit scores to determine the amount of deposit you make.

Unless you have a perfect credit score, there is always room for improvement. The bottom line is that when you are just starting out, it’s easy to overlook the small steps needed in establishing a good score. However, having a good credit score is something that should be maintained and will impact many financial decisions you are able to make in your lifetime. If you have any questions about your credit score, how to obtain credit or how to fix a bad credit score, please contact us for a free 30 minute consultation.

 

4 Financial Red Flags When Dating Someone New

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It might seem strange to talk about finances when you first start dating someone new. People often try to overlook financial issues when embarking on a new relationship as it can be uncomfortable and awkward to discuss. However, if you see a future with that special someone, it’s important to know what kind of financial baggage they might be bringing with them and to be aware of any potential financial red flags.

Red Flag #1: Having Different Approaches to Saving

If your partner is a spender and you are a saver, this could be your first major red flag. It is critical that you both discuss your savings plans and goals in detail. If you share accounts or credit cards, you don’t want one person spending more than their fair share since this would not only negatively affect your savings goals, but it can also create a power struggle over financial control. It’s important to discuss how much money you’re okay spending on certain items and creating a budget that will help you compromise to meet your financial goals. It may be best to keep your finances separate for now, however, if you’re still unable to reach an agreement.

Red Flag #2: Not Discussing Your Credit Scores

Disclosing your credit scores is a must. Depending on what your partner’s credit score is, it could diminish your chances of getting a house together or making any other big purchase in the future.

Red Flag #3: Neglecting To Address Debt 

It is essential that you know what debts your partner may have accumulated and how they plan on handling them. If you’re still getting to know one another, they may not be comfortable divulging the actual amount. You should, however, have a good understanding of whether or not they’re paying it off responsibly and spending wisely. 

Red Flag #4: Not Sharing the Same Financial Goals 

While the relationship is still fairly new, you should outline what your end goals are. It is important to ensure your financial goals are aligned early enough in the relationship to avoid any future disappointment. 

 

The excitement of any new relationship might cause you to overlook some major financial red flags. But when the time is right, it’s important to address these issues (preferably sooner rather than later) – especially if you’re both in it for the long haul.  If you encounter any of these red flags in your relationship and have any questions regarding your finances, please contact us – we are here to help!  

What Happens If You Try To Spend More Than Your Credit Limit?

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When you sign up for a credit card, you are often assigned a credit limit when that account is opened.  These limits typically start at $200 and go up to tens of thousands of dollars.  With so many people out of jobs and finding it hard to make ends meet these days, credit cards have become a necessary resource to pay for things that we might not have the money for right now. However, the more you charge on your cards, the closer you may come to hitting that max limit.  If you do hit that amount, you are likely to get hit with over-the-limit fees. Before you decide to use your credit card to pay for necessities, there are alternatives to going over your max before risking having your credit limit cut or incurring unnecessary fees.  

Can You Go Over Your Credit Limit?

Yes, you can go over your credit limit, but there’s no surefire way to know how much you can spend in excess of your limit. Card issuers may consider a variety of factors, such as your past payment history, when deciding the risk of approving an over-the-limit transaction. Any approved transactions above your credit limit are subject to over-the-limit (or over-limit) fees. This credit card fee is typically up to $35, but it can’t be greater than the amount you spend over your limit. So if you spend $20 over your limit, the fee can’t exceed $20.

Due to the CARD Act of 2009, over-limit fees can’t be charged without your consent. As a result of these regulations, most card issuers have done away with over-limit fees and the default for any transactions over your credit limit may be that the transaction is simply denied.

If you do consent to a one-time over-limit fee, you can change your mind and opt-out at any time. However, in doing so, your card issuer will likely decline any purchases you attempt to make over your limit. Even if you opt-in to over-limit fees, transactions exceeding your credit limit may still be denied.

Should You Go Over Your Credit Limit?

While spending over your credit limit might relieve some short-term problems, it can also cause long-term financial issues, including fees, debt and damage to your credit score. The best practice is to try to maintain a low credit utilization rate – avoid maxing out your card and spending anywhere near your credit limit.  If you do go over your limit, you should sit down and consider why it happened in the first place and review your budget. You should figure out what purchases caused you to spend more and whether you can make any changes to your spending habits.

Alternatives If Your Credit Limit Is Low

For those that may have a low credit limit or if your credit limit recently got cut, there are some options to ensure you don’t max out your spending. If you’ve had a low credit limit for a while and currently have a stable job, you may want to request a credit limit increase. This can be a good idea if you have good credit (scores 670 to 739) or excellent credit (scores 740 and greater) or if you haven’t updated your income in a while and make more money than what’s listed. Your card issuer may pull your credit report for this request, which may cause a small, temporary ding to your credit score.

However, if your credit limit was reduced, you may want to consider other options. Cardholders with good payment history and a stable job should call their card issuer and ask for reconsideration.  You should ask why your credit limit was cut, explain that your account is in good standing and that you have a stable source of income to pay off your bill. This may shed light on why your limit was lowered and potentially result in your credit limit increasing — though there is no guarantee. Rather than asking for a credit limit increase on the card that had a reduction, you may want to consider any other cards you have instead. If you have three credit cards and one got the limit cut, see if you can get an increase on one or both of the other two,

If you have a history of missed payments or maxing out your cards, you are likely not a good candidate for reconsideration and don’t want to draw attention to yourself. Therefore, if you fall into one of these categories, it’s best to not try to request a higher limit.

When To Apply For A New Credit Card

Cardholders with only one credit card and a low credit limit may want to consider opening a new credit card, but should be aware of any potential risks. For starters, if you were recently laid off or faced a reduction in income, you may not be in the best position to be approved for a new card, and there’s no sense in adding a new credit inquiry to your credit report if your chances are low. Also, if you have a history of maxing out your card, you should be aware that more credit can lead to more debt. An additional credit limit can be helpful for affording your expenses, but it can also be harmful if you overspend.

Before opening a new card, give yourself clear guidelines on how you’ll use the card and stick to keeping a low credit utilization rate. When it comes time to pay your bill, make on-time payments of at least the minimum every month for all of your cards.  If you are able to do so, pay in full so that your credit score will  improve and your debt will be minimized. When applying for a new card, check your credit score first to narrow down your options. Then consider cards based on your credit score. 

In these tough times, we need to be responsible when it comes to spending and not see going over your credit limit as a choice. If you do need to use your credit cards to pay for utilities, groceries and other necessities right now, make sure you are aware of your max and other options you might be able to work out with the credit card companies before going over your limit. When you do receive those credit card statements, make sure to pay at least the minimum amount each month to maintain a positive credit score. And, make sure you are paying the bills on time to ensure you won’t incur any late fees either.  If you have any questions about credit, credit cards or other issues concerning your finances, please contact us.  We are all in this together and we’re here to help! 

Equifax Data Breach

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Yesterday, the Wall Street Journal reported that hackers had gained access to some of the systems of Equifax Inc., one of the largest three credit reporting companies, potentially compromising the personal information of 143 million U.S. consumers.  The systems they gained access to contained customers’ names, Social Security numbers, birth dates, and addresses.  These four pieces of information are generally needed for consumers to apply for many forms of consumer credit, including credit cards and personal loans.  This raises the risk of fraud, as it means the hackers could have an easier time getting approved for credit under someone else’s name.  In addition to this information, credit card numbers, driver’s licenses, and dispute documents with sensitive information could have been compromised for some users.  Because Equifax gets its data from credit card companies, banks, retailers and lenders, you could be affected regardless of whether or not you have ever knowingly provided them information.

This is being called one of the largest and most threatening data breaches of recent years.  We encourage everyone to make sure they are protected and to closely monitor their credit for identity theft.  Equifax has set up a website to help consumers determine if their information has been compromised.  One also can call their dedicated call center for consumers at 1-866-447-7559.  The company offers credit-monitoring and identity-theft protection products to guard consumers’ personal information.  Consumers can also protect themselves by immediately placing fraud alerts on their credit reports.  This means that a lender must contact you to verify your identity before it issues credit in your name for the next 90 days.  

If you have any questions, don’t hesitate to reach out to us.

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.